If you have had an opportunity to read through the recent CAG report, you will know that the tax appellate machinery is clogged with objections and appeals.
And if you have gone through a tax dispute resolution process, you can probably testify that it is neither pleasant, nor efficient.
No one likes objections, taxpayers do not like them, tax authorities do not like them, and even tax consultants would rather provide advice than deal with objections.
By definition, it is often the case that a taxpayer contends that their liabilities are lower than the revenue authorities’ calculations. The two parties therefore start off from two opposing sides.
Whilst the tax laws provide for taxpayers to object to TRA’s decisions, this avenue should be used after careful consideration, and with a lot foresight. An objection badly handled will only lead to appeals, and appeals are both costly and uncertain.
There are three key considerations to bear in mind whilst contemplating an objection.One is whether the dispute emanates from a divergence of interpretation of law or that of facts.
In theory, laws should be clear, and in most cases literal. But that is not always the case with tax laws.
The tax authority may come to a completely different interpretation of the same provision of the law than a taxpayer.
In cases where there is precedence in the appellate machinery (such as board rulings or tribunal decisions) on the matter, it is futile to insist that a different approach should be taken, unless of course there is an intention to try to overturn the precedence at a higher judicial body.
Often, the disputes are also of a factual nature. Tax audits are not always comprehensive, even when they are called so. Some information is either not fully shared by taxpayers, or understood by the revenue authority.
Sometimes, assumptions are made that the tax auditors will ‘understand’ the treatment of certain aspects of tax items. This is a dangerous assumption to make for a taxpayer.
I would argue that the solution to this is actually before an assessment is issued. Taxpayers must assume complete ignorance on the part of the revenue authority and provide every bit of information to support their case.
It is also wise, at the time of an objection, to interact with the revenue authority and explain that the basis of the objection is one of facts which can be reconciled with the view of aligning the revenue authority’s expectations on the effort they will expend in the resolution of the objection.
Two is whether the law supports your position, and how grey the issue is from a legal perspective. As indicated above, there are really two sources of interpretation of the law: The law itself and any precedence set by courts.
Before objecting, one needs to consider, objectively, if there is a likelihood of changing the TRA’s mind on the assessment.
Ideally, positions get crystallized during the audit stage, which is where all the work should have been done.
The hope is that at the objection stage, there is some legal issue that the revenue authority may have not considered or fully appreciated.
If there little hope of converting the revenue authority’s interpretation of the law, the objections is only lodged as a prelude to the appeal, where the hope is to get the courts to determine the correct interpretation and hopefully rule in the taxpayer’s favour.
The last thing to consider is how material, and recurrent, the item one is contemplating objecting to. Every business decision is, at the end of the day, a cost-benefit decision.
Objections are costly, not just because you need to hire a consultant or lawyer to assist with it, but also because they demand a diversion of valuable time to attend to them. The question therefore is what are the benefits of objecting, measured against the cost of conceding to a liability?
Samwel Ndandala is a Senior Manager with Deloitte Consulting. He can be reached at [email protected].
The views expressed herein are those of the author and do not necessarily represent the views of Deloitte.